Start-Up Entrepreneur Series: Preferred Stock

In the Start-Up Entrepreneur Series, I will be taking a deeper look into some of the most common questions early stage founders face in putting together and operating their new businesses.  

The Start-Up Entrepreneur Series will be published each Wednesday morning until conclusion. For more information, check out www.hoeglaw.com or drop Rick a line at rhoeg@hoeglaw.com.

***
Unless your new start-up is fully capitalized by its Founders, one of the first questions a new company must ask itself is “How are we going to fund this thing?”.

Last week we discussed the most common preliminary funding mechanism: “convertible debt“.  Today, we’ll talk a bit about the primary form in which institutions invest in start-ups: “preferred stock”.

Financing Term Sheet Deep Dive: Dividends

Whether you’ve only recently decided to seek out capital for your business or you have already received (or made) your first offer, the term sheet (or “letter of intent”) is an integral part of the process.  In this series we’ll look to shed some light on the legal language contained in a financing term sheet by taking a “deep dive” into the most often used terms and how choices made in selecting those terms can affect both the Company and the Investor.  Check out an overview here.

Financing Term Sheet Deep Dive will be published each Monday morning until conclusion.  For more information, check out www.hoeglaw.com or drop Rick a line at rhoeg@hoeglaw.com.

***

When you take out a home loan or put money on your credit card, it is on the understanding that the bank (or other institution) lending you money will expect something back for the trouble. In the case of a traditional loan instrument that “payback” comes in the form of interest, generally described as a percentage of the amount initially lent (or “principal”).

In the equity financing world, the “payback” concept is instead captured by the notion of the “dividend”, or right to receive funds from a company solely because of the stock that you hold.

Let’s take a look at a few of the options.